Top buy-rated stocks in Communication Services – Citi

Citi Research analysts upgraded the communication services sector (NYSEARCA:XLC) to “overweight,” with both subsectors – media and entertainment (PEJ), (SOCL), (ESPO) and telecommunication (IYZ) services – as “overweight” as well.

“A relative performance pullback provides an opportunity to reengage this group that had been a steady outperformer since the end of 2022,” wrote Strategist Scott Chronert, in a note.

Telecommunications (IYZ) is Citi’s preferred defensive industry group, with relative performance gradually gaining traction. Here, “valuations still price in little growth opportunities and, related, implicit growth expectations are reasonable,” Chronert wrote.

Also, lower valuations are in-line with the “below average quality metrics,” but “further improvement in margins as well as sales and EPS inflections look favorable,” he said.

When it comes to sentiment, revisions are mixed, but consensus EPS growth expectations have stabilized.

Buy-rated stocks:

• Warner Bros Discovery Inc. (WBD) – Expected total return: 33%
• Take-Two Interactive Software Inc. (TTWO) – Expected total return: 32%
• Alphabet Inc. Class A (GOOGL) – Expected total return: 31%
• Paramount Global (PARA) – Expected total return: 24%
• The Interpublic Group of Companies Inc. (IPG) – Expected total return: 22%
• IAC Inc. (IAC) – Expected total return: 21%
• Live Nation Entertainment Inc. (LYV) – Expected total return: 20%
• Comcast Corp. (CMCSA) – Expected total return: 18%
• AT&T Inc. (T) – Expected total return: 16%

Sell-rated stock:

• ZoomInfo Technologies Inc. (ZI) – Expected total return: -32%